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Revised 05/02/05—See below
Action Alert No. 05-17
April 28, 2005
NOTICE OF MEETINGS
OPEN BOARD MEETING [Revised May 2: The
Board meeting on May 4 is canceled. Topics will be
rescheduled.] (Board
meetings are available by audio webcast and telephone.)
[Canceled] Wednesday, May 4, 2005,
8:00 a.m.
The Board meeting will begin at 8:00 a.m. instead of 9:00
a.m.
- Life
settlements. The Board will consider measurement model
alternatives for life settlements, as well as disclosure requirements,
and transition. (Estimated 60-minute discussion.)
- Amendment
of Statements 87 and 35. The Board will discuss the status of
the project and consider the next steps. (Estimated 45-minute
discussion.)
- Short-term
international convergence: accounting changes and error
corrections. The Board will discuss two issues that arose in
drafting the final Statement. The first is an issue related to a
proposed disclosure requirement. The second is whether a change from one
allowable transition method to another will be addressed in the final
Statement and, if so, how. (Estimated 60-minute discussion.)
- Employee compensation: classification of freestanding financial
instruments. The Board will consider comment letters received on
proposed FASB Staff Position (FSP) EITF 00-19-a, "Application of EITF
Issue No. 00-19, 'Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock,' to
Freestanding Financial Instruments Originally Issued as Employee
Compensation." The Board will discuss whether to proceed to a draft of a
final FSP. (Estimated 30-minute discussion.)
- Minimum revenue guarantees. The Board will discuss whether to
issue a proposed FSP to address whether the recognition, measurement,
and disclosure provisions of FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, apply to a
guarantor's accounting for a minimum revenue guarantee granted to a
business or its owners. (Estimated 30-minute discussion.)
- Open discussion. If necessary, the Board will allow time to
discuss minor issues with staff members on technical projects or
administrative matters. Those discussions are held following regular
Board meetings as topics come up.
OPEN EDUCATION SESSION [Revised May 2:
The Education Session will begin at 1:30 p.m.]
Wednesday, May 4, 2005, immediately following the Board
meeting
The Board will hold an educational, non-decision-making session to
discuss topics that are anticipated to be discussed at the May 11, 2005
Board meeting. Those topics will be posted to the FASB calendar four
days prior to the education session.
BOARD ACTIONS
The Board Actions are provided for the information and convenience
of constituents who want to follow the Board's deliberations. All of the
conclusions reported are tentative and may be changed at future Board
meetings. Decisions are included in an Exposure Draft for formal comment
only after a formal written ballot. Decisions in an Exposure Draft may be
(and often are) changed in redeliberations based on information provided
to the Board in comment letters, at public roundtable discussions, and
through other communication channels. Decisions become final only after a
formal written ballot to issue a final Statement or
Interpretation.
April 21, 2005 IASB/FASB Joint Board Meeting
Financial
performance reporting by business enterprises. At their joint
meeting, the FASB and IASB agreed on the path forward for the performance
reporting project including the type and timing of future public
discussion documents. The Boards agreed that the goals associated with the
project have such different characteristics that the work should continue
to be performed in segments. A description of issues included within each
segment can be found in the performance reporting project update on the
IASB Website.
Segment A – convergence
Segment A focuses on convergence on the required financial statement
requirements. The Boards decided:
- That a full/complete set of financial statements includes:
(a) A statement that shows balances of assets, liabilities, and
equity at the beginning of the period—referred to as a Beginning of
the Period Statement of Financial Position.
(b) A statement that shows balances of assets, liabilities, and
equity at the end of a period—referred to as the End of the Period
Statement of Financial Position.
(c) A statement that shows the changes in assets and
liabilities occurring during the period, other than those arising from
transactions with owners in their capacity as owners. That statement
would include the currently required subtotal net income/profit or loss
in FASB/IASB standards—referred to as a Statement of Earnings and
Comprehensive Income.
(d) A statement that shows the changes in assets and
liabilities occurring during the period arising from transactions with
owners in their capacity as owners—referred to as a Statement of
Changes in Equity.
(e) A statement that shows inflows and outflows of cash
occurring during the period—referred to as a Statement of Cash
Flows.
- That each individual financial statement within the full set of
financial statements would be shown with equal prominence.
- To require a single Statement of Earnings and Comprehensive Income
that presents a total for nonowners' changes in financial position
(comprehensive income) and a required subtotal for net income/profit or
loss.
- To require comparative information consisting at a minimum of full
sets of financial statements for two annual periods (the current and
prior annual period). This would mean an entity would present three
statements of financial position and two statements of earnings and
comprehensive income, statements of changes in equity, and statements of
cash flows.
- Not to provide guidance on the presentation of financial information
beyond the required minimum (i.e., full sets of financial statements for
two annual periods) that an entity might provide voluntarily.
- To exclude from the scope of this project issues that would address
the content of information in the notes to financial statements (other
than consequential amendments).
- To exclude from the scope of this project issues that would address
the content of information in interim financial statements (other than
consequential amendments). (IASB only). The FASB will separately
consider the impact of joint decisions on financial reporting for
interim periods in the United States.
- To publish a single Exposure Draft for Segment A issues; through use
of the Exposure Draft and public meetings and communication documents,
to explain fully the rationale for and benefits of the proposed changes
to financial statements; and to hold roundtable meetings for public
discussion of the Exposure Draft.
- Based on these Segment A decisions, the Exposure Draft for Segment A
will include:
(a) The definition of a full set of financial statements and
their prominence in a financial statement package
(b) Requirements for the statement of earnings and
comprehensive income
(c) Required number of full sets of financial statements for
annual periods.
- Although the proposed Exposure Draft for Segment A will be a single
document for both Boards, the final standard would amend IAS 1,
Presentation of Financial Statements (IASB), and create a new
standard for the decisions made in Segment A (FASB).
Segment B – fundamental reconsideration
Segment B focuses on more fundamental reconsideration of presentation
and display issues for all financial statements, including the recycling
and disaggregation issues. On the Segment B topics, the Boards
decided:
- To develop a single standard under Segment A and Segment B that
would apply broadly to all entities. The scope of the FASB standard,
however, would exclude not-for-profit organizations.
- To first develop standards of presentation and display that would
apply broadly to all for-profit entities other than financial
institutions. Second, to consider the application of those standards to
financial institutions.
- To select financial institution members for the subgroup of the
Joint International Group on performance reporting. This subgroup will
be formed from nominations received during the JIG nomination process in
2004, as well as from existing members of the IASB's working groups on
financial instruments and insurance.
- To include in Segment B consideration of SFAS 95, Statement of
Cash Flows, and IAS 7, Cash Flow Statements, including
whether to require use of the direct or indirect method and
disaggregation and categorization issues.
The Boards will continue to explore in Segment B the issues of
recycling, disaggregation, and related issues (including reconsideration
of the statement of cash flows).
Short-term
convergence: income taxes. Despite interest by members of both
Boards in exploring the IAS 12 approach to allocating the effects of tax
laws and rates, the Boards agreed that such exploration would be time
consuming and, given that allocations are inherently arbitrary, that a
timely converged approach was the more important objective. Consequently,
at the joint meeting, the IASB and the FASB decided:
- Not to change the intraperiod tax allocation requirements in
paragraphs 35–38 and 273–276 of SFAS 109.
- To amend IAS 12 to adopt the intraperiod tax allocation requirements
of SFAS 109. The requirement to allocate income taxes to items
previously credited or charged to equity contained in paragraphs 57, 58,
and 61–65 of IAS 12 would be amended and replaced with guidance similar
to that in paragraphs 35–38 and 273–276 of SFAS 109.
- To reconsider existing intraperiod tax allocation guidance in
Segment B of the Reporting Financial Performance project.
April 22, 2005 IASB/FASB Joint Board Meeting
(These topics were originally scheduled to be discussed at the joint
Board meeting on Thursday, April 21, 2005, but were rescheduled to Friday,
April 22, 2005.)
Financial instruments: convergence. The Boards discussed
possible approaches for improving the accounting for and reporting of
financial instruments, while also converging and simplifying their various
standards. Members of both Boards agreed that use of a mixed measurement
attribute was the primary source of complexity in existing standards.
While members of both Boards expressed the view that adopting a single
measurement attribute, fair value, would both improve financial reporting
and significantly simplify their accounting standards, they differed in
their views about whether that solution is attainable in the near future.
Members of both Boards also agreed that efforts to converge their existing
standards through amendments of specific provisions would require a
significant commitment of Board and constituent resources for little
marginal improvement in financial reporting. As a result of this
discussion, the Boards decided to work on certain unresolved technical
issues, against the time when constituents had more experience of working
with fair value.
In particular, the Boards directed the staff to analyze two groups of
unresolved technical issues related to financial instruments that are
currently reported at fair value. One group of issues involve the display
of changes in fair value, for example, how to present interest on a debt
instrument that is classified as a financial asset or financial liability
at fair value through profit or loss and whether to separately present the
effects on fair value of changes in exchange rates, interest rates and
other factors.
The second group of issues involve scope and measurement issues. Some
of these issues are how to distinguish financial instruments from similar
contracts, and whether different accounting based on that distinction is
appropriate. The issues include, for example, whether some types of
financial instruments that are not currently recognized in financial
statements should be recognized if they have non-zero fair values, and the
measurement of core deposits.
Some members of the Boards also expressed some interest in exploring a
modified approach for classifying financial instruments based on cash
flows of the instrument, but no decision was made.
The Boards also directed the staff to begin a research project to
develop an approach to derecognition with an initial focus on financial
assets that would be an improvement to both IAS 39, Financial
Instruments: Recognition and Measurement, and SFAS 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The Boards also directed the staff to consider as a part
of that research project the feasibility of developing a broader
derecognition standard that would apply to all types of assets. The timing
of that research work is dependent on staff availability.
Conceptual
framework. At this meeting, the IASB and FASB began their
deliberations to develop a common conceptual framework. The two Boards
discussed issues relating to the objectives of financial reporting. They
reached the following conclusions:
- Financial reports should be prepared from the entity's perspective
and should aim to provide information to a wide range of users, rather
than focusing on the information needs of existing common shareholders
only. The framework should identify the primary users as present and
potential investors and creditors (and their advisers). Later in the
project, the Boards will consider whether financial reporting should
also provide information to meet the information needs of particular
types of users, such as different types of equity participants.
- The objective is to provide information about the entity to the
external users who lack the power to prescribe the information they
require and must therefore rely on the information provided by an
entity's management. The entity's management will also be interested in
that information. However, because management has the power to obtain
the information it requires, any additional information needs of
management are beyond the scope of the framework. Similarly, certain
external users, for example, a credit rating agency or a bank lender,
generally have the power to prescribe the information they require and
their additional information needs may therefore be beyond the scope of
the framework.
- As discussed in the two Boards' existing frameworks, the financial
statements should provide information to help users to assess an
entity's liquidity and solvency. However, that objective should be
consistent with the overall objective of providing information to a wide
range of users. Therefore, the information provided in the financial
statements should not be focused on meeting the information needs of
particular types of users that primarily use the financial statements to
help them assess an entity's liquidity and solvency.
- As with the existing frameworks, the Boards' converged framework
should be concerned with general purpose financial reports, which
focus on the common information needs of users. That does not preclude
the Boards from concluding, in a standards-level project, that
additional information should be provided to meet the information needs
of particular types of users.
In addition, the Boards discussed the relative roles of
decision-usefulness and the stewardship or accountability of management.
In the two Boards' existing frameworks, the overriding objective of
financial reporting is to provide information to assist users in making
economic decisions. The objective of providing information to help users
to assess the stewardship or accountability of management is a subset of
the decision-usefulness objective. The Boards asked the staff to
investigate further the meaning of 'stewardship' and 'accountability,' and
the implications of having such an objective in the framework. The Boards
will then discuss further whether the stewardship/accountability objective
should be retained or eliminated from the conceptual framework.
FASB DOCUMENT AVAILABLE
The Board issued FASB Exposure Draft, The Hierarchy of
Generally Accepted Accounting Principles, on April 28, 2005.
Comments are requested by June 27, 2005. That document can be downloaded
from the FASB website. If you don't have access to the Internet, you can
receive a printed copy by calling the FASB Order Department at
1-800-748-0659.
FUTURE OPEN MEETINGS
The following is a list of open meetings tentatively scheduled through
May. Because schedules may change, please check the FASB calendar before
finalizing your plans. Revisions to this list since the last issue of
Action Alert are highlighted in bold.
Monday, May 9, 2005—American Accounting Association Liaison
Meeting
Wednesday, May 11, 2005—FASB Board Meeting
Wednesday, May
11, 2005—FASB Education Session
Wednesday, May 18, 2005—FASB Board
Meeting
Wednesday, May 18, 2005—FASB Education Session
Friday, May
20, 2005—American Petroleum Institute Liaison Meeting
Tuesday, May 24,
2005—Equipment Leasing Association of America Liaison
Meeting
Wednesday, May 25, 2005—FASB Board Meeting
Wednesday, May
25, 2005—FASB Education Session
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